In life and business, they say it all comes down to timing. If you’ve been considering the sale of your business or some other form of ownership transition, now may be the time to act as the latest data in the mergers and acquisitions arena spell opportunity for exiting business owners.
A Look at Today’s Seller’s Market
The equity capital markets are flush with cash earmarked for investment in privately owned business, and banks are supporting buyers by providing debt at reasonable rates and terms to help fund M&A activity. During the first half of 2014, private equity firms raised $85 billion in new equity capital, bringing the total amount of private equity capital (“PE Capital Overhang” or “dry powder”) to $486 billion at mid-2014.[i] In addition, strategic corporate buyers with excess cash reserves of over $300 billion have initiated aggressive acquisition growth strategies.
During the last five years, there has been an increase of lower middle-market business sale, merger and acquisition transactions valued at under $250 million. With smaller private equity funds of $100 million or less that tend to invest in smaller, lower middle market, family-owned and closely held businesses accounting for 37% of all private equity fund closings in the first half of 2014, it’s safe to say that lower middle market deals are here to stay.
It’s not just the large amount of available capital, but also research that supports that seven out of 10 privately held businesses will transition ownership sometime in the next year to ten years, that indicates that private company M&A activity can be expected to increase going forward. In fact, we currently have a viable seller’s market where demand from qualified buyers exceeds the supply of interested sellers.
Your Next Steps to Seize Today’s Opportunities
As available capital is invested and acquisition growth initiatives are satisfied, buyers will become more selective about future acquisitions and there will be downward pressure on valuations as the cycle shifts from the current sellers’ market to a buyers’ market.
If you are thinking about completely cashing out or considering a two-step private equity recapitalization, sale of a minority interest, a management buy-out or other full or partial liquidity transaction, now is the time to seek professional guidance to gain a thorough understanding of the liquidity options available to you in order to make an informed and timely ownership transition decision. With help from an experienced investment banker, you’ll be better positioned to take action before the current “window of opportunity” begins to close.
Considering an ownership transition? RKL Capital Advisors is here to help. Our full-service investment banking firm helps owners of middle-market, family-owned and closely held businesses define and achieve their financial and personal goals during their ownership transition. Learn more at http://www.rklcapadvisors.com.
Contributed by Joseph T. DiGiacomo, president of RKL Capital Advisors LLC. Joe has more than 35 years of experience in the area of mergers and acquisitions, sales of businesses, recapitalization transactions, raising capital, ownership transitions, management buy-outs, business valuations and other management consulting services.
[i] Source: PitchBook Data, Inc.